Record high investment into New Zealand despite notes of protectionism

New Zealand has witnessed record high inflows of greenfield FDI in 2018, garnering $1.32bn between January and May, but the investment climate is still uncertain.

New Zealand’s FDI gains in 2018 have already exceeded annual inflows since 2011, in terms of capital expenditure, according to fDi Markets. 2018’s investors have come, predominantly, from the US, Australia, Hong Kong and the UK, and the majority of FDI went into the hotels and tourism sector, capturing $781 million and creating 1120 jobs.

This spike may seem surprising in light of growing political opposition to FDI in New Zealand. Following the national elections in October 2017, the coalition government between the Labour Party and New Zealand First – a nationalist party – vowed to restrict foreign investment in certain areas, particularly in relation to ‘sensitive’ land and housing.

Over the past two years, a growing number of New Zealanders have become disillusioned by, in particular, farmland and houses being bought by foreigners, thereby pushing up prices and, in some cases, causing environmental concerns. In March 2017, the Economist found that New Zealand had the least affordable house prices in the world.

Nonetheless, the government’s proposed Investment Amendment Act, which will restrict foreigners from buying residential property, has yet to be passed, as the debate in parliament rages on.

Critics of the proposed law fear that wider reputational damage, in terms of business-friendliness, has already been inflicted on a country which historically has been open to FDI, and which is reliant on foreign funds to do business since its savings record is poor.

2018’s exceptional FDI inflows may assuage these fears. It is arguably too early to gauge the impact on wider investor confidence. On the other hand, there has already been a decline in acquisitions of land and property by foreigners. In the first five months of 2018, $1.4bn of assets classed as ‘rural’ or ‘sensitive’ were bought, a sharp decline from the $3.1bn recorded over the same period last year, according to New Zealand’s Overseas Investment Office (OIO).

“While it is all anecdote, there are reports that the OIO has turned down more block land sales to foreigners recently. That said, there does appear to be more going on in the construction/commercial development space,” says Philip Borkin from ANZ banking group. The latter would explain 2018’s large foreign investments in hotel development, as reported by fDi Markets.

“In a global economy where trade and free flow of capital have large economic benefits, we need to be careful that we do not send a signal that New Zealand is closed for business, or that foreigners – and foreign capital – are not welcome here. The impact of foreign buyers on our housing market is relatively small. But the benefits of openness are broad and large – and they contribute to the living standards of all New Zealanders,” said a recent ANZ report.

It remains to be seen whether the Investment Amendment Act will be passed. Until then, uncertainty persists surrounding the future of protectionism in New Zealand.

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